News: Currency spot market key to making Mumbai global hub

(BL 03/04/2007) New Delhi - If Mumbai were to become an international financial centre, the Government would have to put in place a slew of measures ranging from allowing foreign investments in Government securities to creation of a currency spot market and an exchange for trading in currency derivatives. In a report on `Making Mumbai an International Financial Centre', a high-powered Expert Committee set up by the Government has also suggested that foreign clients be allowed to buy unlimited rupee-denominated corporate bonds and those issued by sub-sovereign entities such as States and metropolitan administrations. "The internationalisation of the rupee-denominated bonds would accelerate the emergence of Indian international financial centre (IFC) on the world stage," says the report, which has been submitted to the Union Finance Minister, P. Chidambaram. In a far-reaching suggestion, the panel has made a case for immediate creation of a currency spot market, with a minimum transaction size of Rs 1 crore and accessible to all financial firms. The committee, largely comprising bankers, has suggested the creation of a rupee-settled exchange-traded currency derivatives market, with trading in futures, options and swaps on currencies. The report, however, seems to be silent on repatriation of profits made through transactions in bonds, but analysts suggest that an international financial centre would assume repatriation of profits. Incidentally, the Committee has made a case for full capital convertibility to be achieved within a time-bound period of the next 18 to 24 months and by not later than the end of calendar 2008. Moreover, the policy problems that have held back interest rate futures need to be rapidly resolved, the committee said. It has also said that the currency spot market and the exchange-traded currency derivatives market, along with the spot market for bonds, need to be merged into the existing securities exchange ecosystem for equity. The committee has also said that the function of a public debt management office should be placed in the Finance Ministry rather than in a regulatory institution to avoid perceptions of conflict of interest. On macroeconomic management, the committee has suggested progressive reduction of the total public debt to GDP ratio from the existing 80 per cent of GDP to significantly less. It, however, did not reach a consensus on any particular debt-GDP ratio as a ceiling.